The synchronicity with which the ECB and the Federal Reserve attempt to discredit Bitcoin with two new papers—filled with arguments as strategic as they are fragile—is curious.
ECB: In the document titled “The Distributive Effects of Bitcoin,” Ulrich Bindseil and Jürgen Schaaf assert that “Bitcoin does not increase the productive potential of the economy.” They go on to claim that Bitcoin’s alleged value stems solely from “speculation,” which is bound to “benefit early entrants at the expense of newcomers.”
Basically, Bindseil and Schaaf have discovered the wonderful world of supply and demand dynamics within that mysterious entity called “the market”—perhaps too complex to grasp for those dreaming of a Soviet-style economy.
FED: The Federal Reserve of Minneapolis doubles down in their paper “Unique Implementation of Permanent Primary Deficits?” suggesting that if Bitcoin became widespread, the government would no longer be able to generate deficits. “The government could simply make Bitcoin illegal.”
The fallacies in the arguments of the money monopolists are addressed in a counter-paper that debunks the arguments from Frankfurt point by point.
The new edition of [#BitcoinTrain](/t/BitcoinTrain) is now online!
A paper bordering on parody but, unfortunately, all too real. Titled “The Distributive Effects of Bitcoin,” it’s authored by Ulrich Bindseil and Jürgen Schaaf: the former manages the ECB’s Market Infrastructure and Payments division, while the latter serves as his advisor. Hosting this paper on its own servers, the Frankfurt institution safeguards itself with a disclaimer: “*The views expressed are those of the authors and do not necessarily reflect the views of the ECB.*” The disclaimer is understandable, as the positions of the two authors are so blatantly biased and devoid of any logical foundation that they seem too much even for Bitcoin’s number one enemy: the central bank itself.
The underlying assumption of the entire document is simple: Bitcoin does not increase the productive potential of the economy. Based on this shortsighted foundation, the authors construct an entire narrative that ignores some of the fundamental changes introduced by Bitcoin.
“Bitcoin does not increase the productive potential of the economy”
Since Bitcoin doesn’t increase the productive potential of the economy, the alleged increase in value is essentially redistributive. This means that the enrichment of the early bitcoin holders can only come at the expense of the rest of society.
Right from the abstract, the authors assert that Bitcoin in no way contributes to increasing the productive potential of the economy. Their thesis is that Bitcoin, lacking any connection to the creation of tangible goods or services, represents an asset with no intrinsic productive value. According to the document, while investments in sectors like technology or industry improve the efficiency and productive capacity of the economic system, Bitcoin provides no such benefit, as it does not directly contribute to production growth or innovation.
For the authors, much of Bitcoin’s attributed value derives solely from financial speculation and the perception of those who purchase it, without any tangible increase in “economic capacity.”
The redistributive potential: penalizing latecomers
Bindseil and Schaaf then explore what they call Bitcoin’s “redistributive structure,” claiming that its mechanism rewards early investors at the expense of latecomers. Their shocking revelation is that Bitcoin’s value increases for early purchasers as demand rises, generating higher returns for those who entered the market first.
In other words, Bindseil and Schaaf have discovered the wonderful world of supply and demand dynamics within that mysterious entity called “the market”—perhaps too complex to grasp for those dreaming of a Soviet-style economy. Not coincidentally, they describe this process as inherently unjust, arguing that people who decide to invest later don’t receive the same advantages and are forced to buy at higher prices.
If the rational part of your mind is screaming in desperation, I ask for one last effort.
The document describes this effect as a negative feature of Bitcoin, comparing it to a “*speculative bubble*” destined to collapse when new investors can no longer sustain the asset’s high price.
A point-by-point rebuttal
I confess, I would never have found the strength to sit down at my keyboard to debunk, once again, arguments so erroneous that they’d make anyone with a basic understanding of economics cringe. Fortunately, Murray Rudd and Dennis Porter of Satoshi Action Education, along with Allen Farrington of Axiom and Freddie New of Bitcoin Policy UK, have taken on this task.
Bitcoin’s productive potential: a central misunderstanding
The main assumption—that Bitcoin does not contribute to the productive potential of the economy—is challenged by highlighting how Bitcoin is fueling an ecosystem of technological and financial innovation. Tools like the Lightning Network reduce transaction costs and increase system efficiency, bringing tangible benefits to the economy. “Considering Bitcoin as a mere speculative tool,” the analysis states, “*means ignoring the immense infrastructural and social value of payment networks and decentralized technologies deriving from its adoption.*”
Bindseil and Schaaf also overlook how Bitcoin is already used to reduce the cost of international remittances, a vital function in parts of the world where transaction costs via traditional banking systems are often exorbitant, reaching up to 20% in some regions. This application provides both direct and indirect productive benefits in contexts with low financial inclusion.
Further, the response notes:
“*Bitcoin is promoting innovation beyond payments. It has catalyzed advances in cryptography and energy efficiency, particularly through mining. Bitcoin mining using waste gas can mitigate methane emissions and improve renewable energy generation, contributing to grid flexibility thanks to the unique features of mining.*”
Beyond technological advances, the arguments against Bitcoin reflect a fundamental misunderstanding of the role of money in capital accumulation and, consequently, economic prosperity. Productivity is driven by capital accumulation, and economic growth is the result of increased productivity through effective capital use. Arguing that capital growth does not contribute to productivity reveals a deep ignorance of basic market dynamics.
Bitcoin’s redistributive potential: a market dynamic
The final criticism from the two ECB-affiliated individuals concerns the accusation that Bitcoin only benefits early investors at the expense of newcomers. The authors of the rebuttal paper observe that this phenomenon exists in any asset—from real estate to gold—where early investors benefit from an increase in value. Furthermore, Bitcoin lacks privileged distributions, as seen in other cryptocurrencies issued with pre-mines or venture capital models. Bitcoin’s distribution model, which began with open and transparent mining, is considered by the authors “*one of the fairest in the history of digital assets.*” I would even go so far as to say the fairest.
The authors also point out that the fiat system, widely supported by the ECB, favors inequality through monetary devaluation—a form of reverse redistribution that penalizes small savers in favor of those with greater access to financial resources. Bitcoin, with its maximum issuance cap, offers an alternative to this erosion of purchasing power caused by inflation. In short, such an accusation from those representing the primary cause of the Cantillon effect is almost laughable.
The Federal Reserve’s direct attack
A few days after the publication of Bindseil and Schaaf’s paper, their American counterparts also decided to attack Bitcoin. The Federal Reserve of Minneapolis published a study titled “Unique Implementation of Permanent Primary Deficits?”
I won’t drag this out: in nearly forty pages of formulas and calculations, Fed experts managed to rediscover the obvious—if Bitcoin were to become widespread, the government would no longer be able to run deficits!
“*Good morning, princess,*” as Roberto Benigni would say in La Vita è Bella. In this newsletter, we’ve been discussing this topic for about three years, yet I haven’t received a job offer from Washington. Perhaps it’s because my views are slightly at odds with those of the employees of the monetary monopolist. The Fed, in fact, sees a very simple solution: ban Bitcoin! They state it plainly:
“*The government could simply make Bitcoin illegal.*”
Here, we encounter a fundamental disagreement. Believing that Bitcoin can be banned by a few lines in a law reflects a profound misunderstanding of the technology. If you’d like a consultation on the subject, dear friends at the Fed, I’ll be here.
Or rather, I’ll be enjoying your decline.
Sincerely,
Federico.
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